Hong Kong
CNN
—
Temu has sued Shein in the United States, accusing its rival of violating antitrust laws by trying to monopolize suppliers and engaging in other allegedly illegal behavior.
The lawsuit, filed Friday in Massachusetts federal court, is a dramatic escalation of a contentious legal battle the two fast fashion upstarts have been embroiled in for months.
It follows another complaint from Shein, which sued Temu in December for allegedly mobilizing social media influencers to disparage Shein online.
In the new suit, Temu claims that Shein has “engaged in a campaign of threats, intimidation, false assertions of infringement, and attempts to impose baseless punitive fines” on apparel makers thought to be working with Temu.
Shein has also “forced” exclusivity deals on clothing manufacturers to prevent them from working with Temu, the complaint states.
Both companies originated in China and made their names as online retailers specializing in a supersonic version of fast fashion, defined as the rapid design and production of cheap goods that respond to fleeting trends.
In some ways, they’re beating industry stalwarts like Zara and H&M
(HNNMY) at their own game, by making items more quickly and being more digitally savvy with customers.
Shein overtook the two giants in US market share during the pandemic, while Temu has clinched a strong position since its launch last year, according to analytics firm Bloomberg Second Measure.
However, the new litigation illustrates how the race is heating up on an emerging industry battlefield.
“This shows how competitive the environment is getting,” said Michael Felice, a partner in Kearney’s communications, media and technology practice.
In its lawsuit filed last week, Temu claimed its recent entry into the United States had rattled Shein.
Temu, which is owned by PDD along with hugely popular Chinese e-commerce giant Pinduoduo, launched in September. It operates as an online general store for everything from home goods to apparel to electronics at strikingly low prices.
The company’s platform quickly became the most downloaded app in the United States, where it currently remains in the top two on iOS and Android app stores, according to Sensor Tower.
As a result of its fast growth, “Shein now views itself as being ‘at war’ with Temu and has engaged in an elaborate and anticompetitive scheme aimed at stymieing Temu’s business,” Temu said in a court filing.
“The US market is the primary theater of this war.”
To force the hand of manufacturers, Shein tried to “lock up the supply chain” by forcing them to sign loyalty agreements, vowing not to do business with Temu, the latter alleged.
It also claimed that Shein issued fines and penalty notices to suppliers that did work Temu, in an effort to send a stern warning to businesses that it would “not tolerate any manufacturer’s doing business with Temu.”
Like Shein, most of Temu’s suppliers are based in China and “are not familiar with the US legal system and lack the funds to pursue independent advice,” Temu said.
“The intent and effect of Shein’s anticompetitive conduct is to exclude Temu so that Shein can charge higher prices to consumers while offering a smaller selection and lower quality than Shein would if it faced competition,” Temu argued.
In response, a Shein spokesperson told CNN that “we believe this lawsuit is without merit and we will vigorously defend ourselves.”
Shein took off in the United States two years ago, luring young customers to its platform through an addictive mobile shopping experience and wide selection of trendy apparel.
The firm is now “by far” the market leader in ultra-fast fashion, commanding more than 75% of US market share last year, according to Temu.
But there are signs its smaller rival is catching up or even racing ahead: In May, total US spending on Temu eclipsed that of Shein by 20%, according to Second Measure.
In recent months, the two have increasingly turned on one another, with battle lines being drawn on social media.
Shein sued Temu in Illinois federal court in December, alleging that the latter had enlisted online influencers “to make false and deceptive statements” about Shein to promote its own goods.
It claimed that Temu had required them to make statements such as: “Shein is not the only cheap option for clothing! Check Temu.com out, cheaper and way better quality.”
The newcomer provided influencers with guidelines to make those statements, creating false advertising, Shein alleged.
Temu has filed to dismiss the suit, but the case is still pending.
The company has said it “strongly and categorically rejects all allegations, and is vigorously defending its rights.”
“For a long time, we have exercised significant restraint and refrained from pursuing legal actions,” Temu told CNN in a statement Tuesday about the new lawsuit.
“However, Shein’s escalating attacks leave us no choice but to take legal measures to defend our rights and the rights of those merchants doing business on Temu, as well as the consumers’ rights to a wide variety of affordable products.”
Temu also claims that Shein “unilaterally changed its contract” with manufacturers, forcing them to effectively give up their intellectual property rights to Shein, which it then used to go after “the very same merchants” on Temu.
Shein’s onslaught has already hurt Temu’s business, the latter claims.
The company has falsely accused its smaller competitor numerous times of copyright infringement “to disrupt sales of products that are offered for sale on Temu,” the latter said in its complaint.
As a result, more than 10,000 product listings have been pulled from Temu since last October, it added.
The ongoing spats demonstrate how “obviously each [company] is a threat to the other,” said Felice.
“Given this dynamic, the lawsuits are not a surprise, and each seems to be trying to establish legitimacy in the courts by delegitimizing the other.”
